COUNTRY COMPARISONS 

 


A Brief Comparison
of the Economies
of Sweden and Norway:
1950  to Present


By James Denham

 

 

 

I. Introduction

As may be expected, Norway and Sweden’s history prior to the twentieth century is remarkably similar. Both remained medieval countries participating in various wars of conquest and ruled by an aristocracy until the advent of Enclosure in the nineteenth century. Throughout this period both countries relied on their abundant natural resources to fuel their economies. Both countries also sent approximately a quarter of their populations to the United States as immigrants beginning in the second half of the nineteenth century. They were also once famous for their ore and timber industries. Norway was once one of the world leaders in the shipping and fishing industry.

 

 

 

 

OSLO

 Indeed Norway’s differentiation from Sweden comes mainly from this feature: Norway’s resources necessitated trade. Norway has always pushed an open economy with high trade volume. Sweden, though also active in imports and exports, did not develop a shipping industry, instead allowing foreigners to come to them to trade. Sweden’s relatively isolationist stance fit well with its later Social Democratic government by making great efforts to look after its own people but often ignoring the rest of the world (Sweden has been a militarily neutral country since 1818). Much of this paper focuses on the latter half of the twentieth century, so here we will set the framework from which these two countries developed. Norway was (partially due to the Second World War, from which Sweden abstained) significantly poorer than Sweden by the middle of the twentieth century. Because of this, over the past half-century Norway has actively pursued an open economy with many ties to the outside world. Sweden preferred to remain relatively isolationist. Since the 1970s, when both countries encountered severe economic difficulties, they have sought more parallel courses as post-industrial democracies. Following is a brief examination of the past fifty years.

 

II. National Identity

One defining factor of the Swedish people is their collectivistic nature. Such collective societies, though commonly found in East Asia, are considered rarities in Europe and the Western World. Moreover, their neighbors all follow the more Western (or American, if you will) practice of focusing on the individual. Obviously this trait goes hand in hand with Sweden’s historically Socialist driven government and economy. As Frederic Fleisher points out, “Swedes belong to more organizations than any other people in the world. They are inclined to join organizations that protect their material interests, that help them get somewhere, and that act as pressure groups…

 

 

 

STOCKHOLM

Of Sweden’s less than eight million inhabitants, over ninety percent who earn a living belong either to an industrial, a white-collar, a professional, or an employer’s union…They are proud of their system because they believe that the organizations have contributed to developing what they consider to be a more rational and more realistic society than others.” (Pages 40-1)4 Fleisher goes on to point out that “Swedes often refer to their country as ‘Organization Sweden’”. This collective nature of the Swedes has made Sweden’s Gini coefficient one of the lowest around: there are few very poor or very rich people. Henry Milner points out that even “The King’s children attend public schools”10. But even more importantly he eloquently describes Swedish values: “Respecting each other not as winners and losers in a competitive jungle, but as members of a community living together in the people’s home, citizens in a social democracy respect their common institutions, and put effort into trying to make them work as they should. They regard them as their own constructs to be consequently adhered to, eschewing the ‘free ride’ on the backs of others.” (p. 186). Sweden’s rare social democracy has allowed her people success without any advantage of natural resources or financial endowments in the twentieth century. Swedes have proved that working together as a group instead of against one another can yield a strong and successful economy. Norway, though also historically a relatively “leftist” society, remains to the right of Sweden, economically speaking. Fritz Hodne points out that Norwegians “kept Labour in power for twenty years from 1945-65. Labour dominated politics as it dominated the media and the public debate.”8 However Norway distinguished its relatively leftist government from Sweden’s Social Democracy by emphasizing free-trade, exports, and by heavily investing in capital. And beginning in the 1980s turned to a Conservative-led government. Consider the following figures are taken from Hodne:

 

Table 11.4, Non-residential Fixed Investment
as per cent of GNP at current prices    

 

1920-38

1950-60

1960-70

Norway

12.4

23.7

23.8

Sweden

10.5

15.5

17.3

Norway has regularly topped the list of Western European countries in capital investment. Hodne points out the importance of this Marxian emphasis: “Capital, by providing new equipment, not only allows increased employment for a growing labor force; new capital also embodies the new technological improvements in the form of products, tools and processes, which permit the work force to be more productively employed as well.” Whereas the Swedes’ collective nature (and more Socialist government) facilitated employment by looking out for one another through unions and welfare plans (i.e. the LO—The Confederation of Swedish Trade Unions (Landsorganisationen I Sverige)), Norwegians used a relatively capitalist approach. They exhibited the same cut-throat methods as western societies are apt to do but, through heavy capital investment, furthered their own cause. This propensity to saving instead of spending, while it may have dampened demand, succeeded in maintaining economic growth by way of a large industrial base, from which Norway developed into a strong post-industrial country (though only after the Oil-induced crisis of the seventies and early eighties). Evidence of strong economic growth is available in the following figures for shifts in sectoral employment:8

 Table 11.3: Employment by Sector (%)

 

Primary
(agriculture,
fishing)

Secondary
(mining,
manufacturing)   

Tertiary
(services):

1950

25.9

36.5

37.1

1960

19.5 

36.5

43.8 

1970

11.6

37.3

50.9

1980

8.4

29.7

 61.8

These figures show a downward-rightward shift in sectoral employment over time from the more basic industries to those more characteristic of a leading industrial nation. This eased Norwegians’ reliance on primary exports in sustaining economic growth.

 

III. Economies

 One reason that Norway and Sweden were chosen for this comparison was their inherent similarities. The two countries have for a long time been considered almost identical. But there remain differences between Norway and Sweden which, when brought to light, paint distinct pictures of each country’s economy. Norway and Sweden have both followed the trend of shifting their labor forces from primary industries like fishing and forestry to service oriented industries over the past century. This shift has helped them become leading post-industrialist countries as they no longer have to rely on natural resources to fuel their economy. Norway and Sweden’s past primary industries, which fueled their development throughout the twentieth century, were shipping, fishing and ore by-products for Norway, and forestry and ore by-products for Sweden. Evidently both have had access to abundant hydro-electric power to run the mills and ore smelting facilities. But after the 1960’s and 1970’s this all had to change: the availability of cheaper labor abroad caused the flight of many of these primary industries. The Norwegian shipping and fishing industries are now mere shadows of what they once were, as well as its previously world-leading ore export industry (Norway was once the leading exporter of aluminum, even though bauxite is not indigenous to Norway)7. Sweden’s primary industries are also skeletons of what they once were, but Sweden was not as lucky as Norway. In the Late Sixties the Phillips oil company, practically by mistake, stumbled on massive oil deposits in the North Sea off Norway’s coast7. Just as Norway’s primary industries were sounding their swan-song the Norwegian Oil Industry began developing and filling the government’s coffers with much needed revenue. Although the advent of oil had, in the long run, negative repercussions due to mismanagement (see section four) it did prop up Norway’s waning industrial economy throughout the 1970s. Sweden, on the other hand, was forced to rely more heavily on service-oriented industries for its economic survival. The most notable difference between Norway and Sweden’s economies is the role of government in the economy and day to day life. In 1964 government expenditures (including, but not limited to, social security and public enterprise) were, for Norway, 36.5% of GNP while those of Sweden were 52.9% of GNP6. This figure alone is indicative of the orientation of these two countries’ economies: Norway relies more on private enterprise and investment and (as mentioned in section two) has therein focused more of its capital investment. Hence the argument that Norway is relatively capitalist compared with Sweden, whose government has gone to great lengths to not only control many otherwise private industries, but to take up the responsibility for the general welfare of its population. While Sweden has proven this central-command approach to yield fewer super-success stories, more people are in livable conditions. Norway on the other hand offers more opportunity to its workers but at the same time more risk. Norway is, relative to Sweden, a very open economy. One of the governments’ primary goals since 1950 has been the deregulation of trade and the opening of the economy. Beginning in the 1950s Norway was a major figure in European Trade Federations, beginning with the Marshall Plan in 1948, followed by the Organization for European Economic Cooperation (OEEC—later the OECD) and The European Free Trade Area (EFTA) in 19608. Even as late as 1994 Norway reinforced its commitment to economic liberalization by signing into the EEA (European Economic Area)7. Sweden fared no better than Norway after the booming sixties. Beginning in the 1970s, with the flight of many primary industries (coupled with the oil shocks of the 1970s), the Swedish economy began to stagnate. While there remained an ever-increasing demand for free public services which Swedes had become accustomed to (i.e. health care and education) along with a growing demand for more modern amenities, the economy did not grow enough to support this demand. Instead it turned to what is generally known as ‘stagflation’. Herein lie the strengths of the Social Democratic lifestyle for which Sweden has become famous: Although the seventies were marked by economic sluggishness, the difficulties other western countries experienced due to the changing economy and labor disputes were not a big problem in Sweden. The common cohesiveness of the Swedes, discussed in section two, helped them to avoid such conflicts as those in other western countries like the United States and Britain. Instead of adopting the “every man for himself” mentality which is common in most western societies (including Norway), Swedes banded together to help each other. Knowledge that economic growth depended on cooperation between employers and employees led the Swedes to help each other out and be more tolerant of the bleak economic climate. Without the help of a newborn oil industry like Norway had to prop up its economy, Sweden still managed to weather the stagnant seventies by shifting from the inefficient primary and secondary industries to tertiary service industries. Further investment in human capital by the very available education opportunities in Sweden has turned them into a nation of thinkers instead of doers (i.e. tertiary industries as opposed to primary industries).

 

IV. Living Standards

Norway and Sweden’s living standards are relatively equal today, but that is not to say that they have always been so. Sweden, partially due to her cohesive economic practices, took the lead in this race over Norway, who only began to catch up in the eighties when both countries ran into a recession. One odd yet important indicator of Sweden’s early lead, which occurred soon after the Second World War, is addressed in Karl Gustaf-Hildebrand’s essay The New Industrial Structure – The Scandinavian Experience5. Hildebrand, while discussing the development of transportation in Scandinavia, points out that for many decades through the 1940s there was a sustained emphasis on developing the Transportation industry. Sweden, taken as an example, saw a 25% increase in transportation employment over the 1940s. After this period, however, “there is a pronounced stagnation in both Sweden and Denmark, and the subsector’s [transport] share in total employment has decreased.”(p. 51-2) This is despite the fact that more people and freight are traveling over greater distances. Hildebrand refutes technological advances as a reason since “this could, at best, provide a very partial explanation.” Instead, he says, the real cause was a large shift of transportation from the public back to the private sector. More individuals had access to cars; more companies had access to and could afford trucks, which were, due to the cheap oil prices of the time, more efficient and convenient than having to ship freight by rail. For statistical proof Hildebrand points out that “In Sweden, railways, tramways, and buses answered for two-thirds of all personal travel (on land) in 1950, but for only 16 per cent in 1964.” Obviously the effects of a burgeoning economy took their course in Sweden by shifting it back to the private sector. This effect was emphasized by the universal free health care, education, and other perks offered by the government in return for high tax rates. But then in the 1970s disaster struck for Sweden: Milner10 refers to it as “a considered and competently executed strategic miscalculation” (p. 12). Milner goes on to describe the situation: “The policy-makers—following OECD advice most other members chose to ignore—shortsightedly adopted a wage-led demand-expansion strategy in an effort to ‘bridge over’ the 1975 world recession which followed upon the first OPEC oil shock…The recession lasted longer than expected and Sweden found itself priced out of a shrinking market and then plunged into recession just as the international market improved in 1979.” The situation was made worse by the government’s lack of resolve to increase taxes, instead borrowing on the international market and further weakening Sweden’s position. The Swedish economy stagnated throughout the seventies, then, along with Norway, resumed its post-industrial development in the mid-eighties. At just about the same time that this was happening in Sweden, just across the border in Norway massive oil deposits had recently been discovered and their revenues began filling the coffers of a relatively poorer Norwegian government. The total value of oil production rose from .2 to 50.3 billion kroner between 1973 and 1981. This represented more than a 15 % increase share in the Norwegian economy, which was second only to the public services sector. Government revenue from oil rose from zero to about 25 % over this same period8. But the advent of oil in Norway was, until the eighties, a curse. The economic boom that followed the discovery of oil was due solely to oil; activity in other sectors declined in real terms and, by the late seventies, the Oil industry had nothing to show but a 10 % inflation rate. The resulting economic fiasco that ensued included an 8% devaluation of the kroner in 1978, a 2 % increase in the discount rate in 1979 (to the highest level ever seen), and the fall of the Labor party from power. Retrospective analysis proved the revenue from oil only served to prop up the suffering economy in the seventies. It had adverse effects on the economy by, as previously mentioned, raising inflation to more than 10 % and causing a massive wage gap. Seeing as much of the Oil revenue had been used to prop up the economy, Norwegians became disillusioned with the relatively high amount of welfare plans. They chose, in 1981, to oust the Labor party from control of the government. There then followed a shift towards a more capitalist government led by the Conservatives who lowered tax rates and eliminated welfare programs. Although Norway continues to produce oil today the economy has recovered from this Dutch Disease while the government has stopped relying on oil to subsidize the rest of the economy. Today Norway’s economy continues to follow this trend toward privatization and deregulation. Sweden has followed a similar yet not as drastic shift from Socialism to Capitalism. Swedes still retain many of their values which favored Socialism and continue to tread the fine line between Socialism and Capitalism. Both countries have used their post-industrial status to become some of the leading economies at the end of the twentieth century. Their service-oriented economies are relatively impervious to business cycles and allow constant progress.

 

References

 1. Sweden: Choices for Economic and Social Policy in the 1980s, editors Bengt Ryden and Villy Bergstrom, George Allen and Unwin Publishers ltd, 1982.

2. The Swedish Economy editors Barry Bosworth and Alice Rivlin, The Brookings Institution, USA, 1987.

3. Childs, Marquis Sweden: The Middle Way on Trial Yale University Press, USA, 1980.

4. Fleisher, Frederic The New Sweden David McKay Company Inc., USA, 1967.

5. Post-Industrial Society editor Bo Gustafsson, Croon Helm ltd, USA, 1979.

6. Hancock, Donald Sweden: The Politics of Postindustrial Change Dryden Press Inc. USA, 1972.

7. Heidar, Knut Norway, Westview Press, USA, 2001.

8. Hodne, Fritz The Norwegian Economy 1920-80 Croon Helm ltd, Australia, 1983.

9. International Financial Statistics Yearbook, 1998. 10. Milner, Henry Sweden: Social Democracy in Practice Oxford University Press, UK 1989.

 

 

 

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